Should I pay off a personal loan early or top up my savings?
There are many reasons to borrow money through a personal loan, and the good news is that if you make your monthly loan payments on time, the borrowing shouldn’t hurt your creditworthiness – while you am amassing a large credit card balance could damage your score. If you have personal loan debt but your circumstances allow you to make more than your minimum monthly payments (e.g. your income has increased), you may be eager to pump extra money into this loan to get rid of it sooner and save yourself some cash on interest.
But is early repayment of a personal loan a smart idea? Or are you better off adding cash to your savings account?
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What are your emergency savings?
Your primary financial goal, regardless of your financial situation, should be to have an emergency fund with enough cash to cover three to six months of living expenses. This way, if you lose your job or have unplanned bills, you can cover your expenses without incurring debt or falling behind on your financial obligations and undermining your creditworthiness.
For example, suppose you are sitting on extra cash each month to invest in your savings or siphon off a personal loan balance. To decide where to go with that money, all you have to do is ask a simple question: what is my emergency fund like?
If you have enough savings to cover the bills for at least three months, you may want to use your extra cash to pay off your personal loan. However, if there is little money to be saved, this should be a priority.
Choosing the Best Ascent Personal Loans
Are you looking for a personal loan but don’t know where to start? Choosing the best Ascent personal loans will help you demystify the offers so that you can choose the best one for your needs.
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The good thing about personal loans is that they are usually fixed rate. You shouldn’t feel rushed to repay your loan early for fear that your interest rate will rise over time. If you stick to your credit plan, you may even find that it is helping you build credit – these on-time payments are recorded and added to your payment history, the most important factor in calculating your credit score.
Are there any disadvantages to early repayment of a personal loan?
While it is possible for a personal loan to include an early repayment penalty, most of these loans are not responsible for making you pay off your balance early. If you are set on emergency saving, there is no reason not to use your excess money to finish that loan quicker. While personal loans aren’t the worst type of debt, they aren’t the best either. So the sooner you get rid of your debt, the sooner you can enjoy the freedom of not having a credit balance on your head.